Vivendi SE is in talks to sell 10% of Universal Music Group to a blank-check firm backed by billionaire Bill Ackman while it prepares to spin off most of the world’s biggest music company.
The potential transaction would value the home of Taylor Swift, Drake and Billie Eilish at 35 billion euros ($42.4 billion) including debt, Vivendi said in a statement on Friday, above the 30 billion-euro valuation ascribed to the business in 2019 when China’s Tencent Holdings Ltd. acquired a stake.
Ackman’s special purpose acquisition company, called Pershing Square Tontine Holdings Ltd., raised $4 billion in a July initial public offering — a record-setting amount for a SPAC. Such firms list their shares and then merge with a private company to take it public.
The proposed transaction, however, is structured as a stock purchase ahead of UMG’s IPO and not a merger, Pershing Square Tontine said in a statement. Under the terms of the proposed transaction, Pershing Square Tontine intends to distribute the UMG shares to its investors after the music business’s planned public listing in Amsterdam. Ackman’s blank-check company will remain listed with $1.5 billion in cash and continue to search for a new business combination.
Pershing Square Tontine said the deal won’t require a vote from its investors because of its structure. Pershing Square funds will own 29% of the remaining blank-check company.
Investors will also get the right to acquire a stake in a new vehicle known as a special purchase acquisition rights company, or SPARC, that is expected to be listed on the New York Stock Exchange.
Vivendi said Pershing Square funds and their affiliates have indicated that they may acquire further exposure to UMG by buying Vivendi securities or UMG securities following the spinoff.
Shares in Pershing Square Tontine fell as much as 12% in New York trading Friday on the news.
The proposed transaction comes as music industry has rebounded from a decadelong slump thanks to surging revenue from streaming services, and Vivendi has sought to squeeze more value from UMG — especially after suffering declines in its advertising and publishing operations.
Vivendi plans to distribute 60% of the music business to its shareholders later this year and list it in Amsterdam. That deal is due to be approved by shareholders on June 22.
“The big story remains the floating of the 60%,” said Massimo Stabilini, who runs a hedge fund strategy at Sinclair Capital that bets on corporate events. “The SPAC is probably trying to produce a short-term profit by effectively putting together a pre-IPO trade. For Vivendi it’s probably useful to firm up a valuation before the IPO.”
Citi analysts said the proposed sale to Pershing Square will be viewed as “mildly disappointing” as the UMG valuation being discussed looks relatively modest.
Going public could give UMG more financial clout to compete with rivals Warner Music Group Corp. and Sony Music Entertainment. Vivendi had originally planned a 2023 IPO for UMG, but said earlier this year that it was now aiming for the business to go public by the end of 2021.
If the potential Pershing deal and the spinoff go ahead, it would leave Vivendi with no more than 10% of UMG alongside Tencent’s 20% holding, although Vivendi’s controlling shareholder — French billionaire Vincent Bollore — will hold an additional stake in the music business via his family’s holding companies.
It would also leave UMG with an investment base in the world’s three big economic regions — the U.S., Europe and Asia.
After cementing its dominance of the industry under veteran Chief Executive Officer Lucian Grainge, UMG will need to work harder to keep growing as the boom in subscription streaming starts leveling off and the company looks for further growth in Asian markets, where music piracy is still a problem.
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The big music companies aim to keep profits rising by monetizing their enormous back catalogs via deals for everyone from video-game makers to YouTube fitness coaches to use their tunes.
Smaller independent companies are luring artists away from the big majors by offering them distribution, marketing and rights-management services deals, while allowing the musicians to keep control over their output.
Activist hedge fund Bluebell Capital Partners has asked French market regulators to investigate Vivendi’s spinoff plan, saying it hasn’t been straight with shareholders over key terms of the deal and that its plan precludes other ways to engineer the separation that would be more tax efficient.
Bollore has built his fortune through canny investments and complex deals that allowed him to pull the strings without being forced to bid for overall control of the companies. Bluebell said in a letter to the regulator last week there’s a risk Vivendi may eventually allow Bollore to strengthen his control over UMG.
Bluebell Chief Investment Officer Giuseppe Bivona said in an emailed statement Friday he remains puzzled by Vivendi’s handling of UMG.
“Furthermore, the valuation obtained appears underwhelming,” he said, noting it simply reflects the fair value of UMG. “We see very limited value to UMG’s equity story being created by what has been announced today.”
(Updates with shares in eighth paragraph. A previous version corrected the status of the special purpose acquisition rights company.)
–With assistance from Nishant Kumar.